Frankfurt am Main, April 08, 2020 -- Moody's Investors Service, ("Moody's") today
downgraded ABB Ltd's (ABB) long term issuer rating to A3 from A2
and the short term issuer rating to P-2 from P-1.
At the same time, Moody's downgrades to A3 from A2 ABB's
senior unsecured debt instruments. The outlook on the ratings changed
to stable from negative.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
This rating action follows an extended period of time in which ABB's
operating performance and credit metrics did not meet the requirements
for its previous A2 rating. Furthermore, Moody's downgrade
reflects increased uncertainties regarding the company's ability
to shortly restore its credit profile in light of the economic impact
from the covid 19 outbreak.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. We regard the coronavirus
outbreak as a social risk under our ESG framework, given the substantial
implications for public health and safety. Today's action
reflects the impact on ABB of the breadth and severity of the shock,
and the risk for the group's operating performance it has triggered.
Since Moody's changed the outlook on ABB's rating to negative
from stable in December 2018, ABB has not implemented the expected
improvements of its credit metrics. The company's leverage
further increased to Moody's adjusted debt / EBITDA of 2.8x
(as of 31 December 2019), well above the threshold for a downgrade
of 2.0x. Also in terms of profitability and free cash flow
generation ABB did not return to levels, which are adequate for
a A2 rating, notable an EBITA-Margin below 12% in
2019. In 2019, the company's free cash flow generation
was burdened by restructuring expenses and high working capital outflows
and amounted to $ -372 million on a Moody's adjusted
basis.
At the same time, Moody's acknowledges ABB's restructuring
efforts aiming to arrive at a company reported EBITA margin level of 13-16%
(11.1% in 2019), by its ongoing systematic portfolio
management and reduction of corporate costs. The implementation
could be more challenging in light of the current weakening of the macroeconomic
environment.
Furthermore, despite the challenging market environment, Moody's
expects that the disposal of 80% of the company's Power Grids
business will be executed as planned by the end of Q2 2020. Net
proceeds from the disposal will amount to more than $7.6-7.8
billions are going to provide a comfortable liquidity cushion in times
of economic uncertainties and risks. In this context Moody's
also expect some flexibility in the company's capital allocation
to preserve its solid liquidity position, in a scenario of a more
severe contraction of operating performance in light of the current macroeconomic
challenges.
ESG CONSIDERATIONS
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety.
OUTLOOK
The stable outlook reflects Moody's expectation, that ABB's
strategic transformation process towards a leaner and more efficient company
structure should support a medium term improvement of the group's
profitability. Furthermore, the stable outlook reflects the
cash inflow from the Power Grids disposal of more than $7.6-7.8
billion and assumes its flexible allocation to preserve a comfortable
liquidity cushion.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be downgraded if (1) EBITA margin were less than 10%;
(2) RCF/net debt below 30% for an extended period of time;
(3) Debt/EBITDA of sustainably more than 2.75x or (4) sustainable
negative free cash flow generation resulting in a weakening liquidity
profile.
Moody's could upgrade the rating if (1) EBITA margin were higher
than 12%; (2) RCF/net debt sustainably in excess of 35%;
and (3) Debt/EBITDA less than 2.0x.
LIST OF AFFECTED RATINGS
..Issuer: ABB Asea Brown Boveri Ltd.
Downgrades:
.... LT Issuer Rating, Downgraded to
A3 from A2
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: ABB Capital B.V.
Downgrades:
....BACKED Senior Unsecured Medium-Term
Note Program, Downgraded to (P)A3 from (P)A2
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: ABB Finance (USA) Inc
Downgrades:
....BACKED Senior Unsecured Medium-Term
Note Program, Downgraded to (P)A3 from (P)A2
....BACKED Other Short Term, Downgraded
to (P)P-2 from (P)P-1
....BACKED Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2
....BACKED Senior Unsecured Shelf, Downgraded
to (P)A3 from (P)A2
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: ABB Finance B.V.
Downgrades:
....BACKED Commercial Paper, Downgraded
to P-2 from P-1
....BACKED Senior Unsecured Medium-Term
Note Program, Downgraded to (P)A3 from (P)A2
....BACKED Other Short Term, Downgraded
to (P)P-2 from (P)P-1
....BACKED Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: ABB Holdings, Inc.
Downgrades:
.... BACKED LT Issuer Rating, Downgraded
to A3 from A2
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: ABB Ltd
Downgrades:
.... LT Issuer Rating, Downgraded to
A3 from A2
.... ST Issuer Rating, Downgraded to
P-2 from P-1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: ABB Treasury Center (USA) Inc.
Downgrades:
....BACKED Commercial Paper, Downgraded
to P-2 from P-1
....BACKED Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: Thomas & Betts Corporation
Downgrades:
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2
Outlook Actions:
....Outlook, Changed To Stable From
Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Manufacturing Methodology
published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
COMPANY PROFILE
ABB is one of the largest suppliers of power and automation technologies
worldwide, with consolidated revenue of $27.98 billion
in 2019 ($27.66 billion in 2018). ABB operates in
four divisions: Electrification (approximately 44% of revenue),
Motion (22%), Robotics & Discrete Automation (12%)
and Industrial Automation (22%). On 17 December 2018 ABB
announced to sell 80.1% of its Power Grids business to Hitachi.
The group is headquartered in Zurich, Switzerland, and has
approximately 144,000 employees. ABB Ltd, the parent
company, is listed in Zurich, Stockholm and New York,
with a 12% stake held by the Swedish investment company Investor
AB (Aa3 stable) and 5.92% by Cevian Capital (unrated).
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Stephan Wulf
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
